Core Lithium (CXO) - 40% Off-Take Agreed & In Construction in 2021

ASX-listed Core Lithium is well-positioned to be Australia’s next Lithium producer, developing one of Australia’s most capital efficient and lowest cost spodumene Lithium projects located near Darwin Port in the Northern Territory, Australia.

Core Lithium’s 2019 Definitive Feasibility Study (DFS) highlights the production of 175,000tpa of high-quality Lithium concentrate at a C1 Opex of USD$300/t and USD$50M Capex through simple and efficient DMS (gravity) processing of some of Australia’s highest-grade Lithium Mineral Resources.  

We caught up with Stephen Biggins, MD of Core Lithium. The last time we spoke was mid-December when their share price had doubled. The share price then went from USD$0.09 to the high US$0.30s, and has now settled at a still respectable USD$0.22. People are paying attention to the Core Lithium story and there is interest coming back into the Lithium sector.

Investors are coming back to Lithium equities, as the Lithium and chemical price in China has increased by between 40-50% over the past few months. The Spodumene price has increased from USD$350 in the middle of last year to USD$450 last month so equity investors are coming into the sector again and the price and demand are both increasing.

Lithium is now doing well after 3-4 years, as are other battery metals such as Tin, copper, graphite and Nickel. There are record EV sales around the globe, firstly in China, followed by very strong growth in Europe. The last few months in particular of 2020 showed record global EV sales. And with a change in US administration, it looks like the US is going to join in as they look to decrease emissions and stimulate global growth and EV's through a lower emission future. Investors in battery manufacturers and battery metals miners are well placed to take advantage of that.

Company Overview & Progress 

Core Lithium is Australia's most advanced new Lithium producer and are looking to start construction in 2021. They have a fully approved Lithium project to produce high-quality Lithium concentrates out of Darwin in Northern Australia, potentially to be in production by the end of 2022. Core Lithium is a Spodumene producer and is likely to become part of the Tesla supply chain in the future, through an off-take deal that their largest shareholder group, Yahua, did with Tesla in December. Yahua will be supplying Tesla with Lithium hydroxide for 5 years and Core Lithium has an off take deal with Yahua to supply them with Spodumene, from which they will produce Lithium hydroxide and supply to Tesla and others.

Share Price Movement: Why are People Paying Attention?

There has been specific interest in Core Lithium as a result of that association with Tesla, but as a whole, they are becoming recognized as an advanced next Lithium producer in Australia which will be contributing to the battery supply chain in only a couple of years.

Spodumene VS Hydroxide: The Market, Competition, & Price Needs

The spodumene price is increasing in the same way that Lithium hydroxide and carbonate is. The margins in the industry need to increase as new suppliers need to be incentivized, which is the lesson learn from 2020. The industry is now more mature and we will see some stabilization from incentive prices stabilizing the sector because the whole EV supply chain needs to grow, and the whole Lithium battery supply chain needs to grow with a level of maturity and stability.

There are only 4 Spodumene miners in Australia. 3 of them are independent and represent over half the world's Lithium supply. It is quickly becoming a sellers market. There's a lot of control now coming back to raw material suppliers in Australia, and as demand is growing, those suppliers are in a good position to control supply in a sensible way and have some positive influence on pricing.

As volumes are controlled, the higher the price goes and the more attractive it is for Core Lithium and others to get exposed to those prices sooner rather than later. Core Lithium has gone through all the approvals processes and the engineering and Feasibility Study, so they are now near construction ready with the aim of making a final investment decision on the project in the next 4-6 months.

Based on the level of demand that is coming all the way through the supply chain, to electric vehicle manufacturers, Lithium battery manufacturers, cathode manufacturers and the converters, there is interest in Lithium products beyond the capability to supply. Using the most extreme case predictions, we are going to need 7 SQM's (one of the world largest producers) to come into production each year for the next 10 years. 

Expectations & Timing for an FID: What is it Dependant On?

Core Lithium is currently updating the DFS and has some engineering studies to complete over the next couple of months before releasing the DFS Q2/21. They will present the project to debt finance markets with the aim of achieving FID by the Q3/21. 

Core Lithium has had a lot of interest from their soft marketing so far for the debt and therefore expect to be able to access a standard bank debt finance. One advantage for Core Lithium being in the second phase of the Lithium story is that the global banking industry is becoming more comfortable with the Lithium sector, alongside the battery thematic, and they want to participate and contribute to facilitating that growth in the Lithium battery supply chain.

Lessons were learnt in 2017, when there was a spike in the equities markets, followed by lithium oversupply causing the market to get very nervous. That nervousness is still there with some financiers. The banks are looking for a flattening of the price and an increase of the price and we're seeing both those things happen recently, which puts Core Lithium in a better position to be presenting the case to the debt markets for the banking loan this year.

Allocating Money: Plans for the Gold Asset

The largest portion of the cash raised is going to go into Lithium exploration and resource drilling to continue to grow the life of mine of the Lithium project. Given the increasing level of demand and the opportunity around growing the life of mine there are opportunities to look at increasing the capacity of production of the project as well. They will also look at their Lithium exploration teams and drill rigs in the area and could carry out some early value-add Gold exploration alongside that. The Far East Gold discovery is only about 5km away from where they expect the Lithium-ion processing plant to be.  

The company thinks they can efficiently add some value and understand that value clearly before doing anything corporately with those assets. When the timing is right, along with their high-grade Silver project in the Northern Territory, there is the opportunity to create value for their shareholders through possibly spinning out or selling those assets.

With the Silver asset, Core Lithium has expressions of interest from other companies, and the Gold assets have expressions of interest from brokers who are keen to take those projects to market. When the timing is right, those assets will create value for shareholders.

Finniss Lithium Project: Advancement, Economics, & Terms of the Offtake Agreement  

Core Lithium has all the approvals needed from the government to start mining, to start construction, and to be operating both the mine and the processing facility. They have an off-take with one of China's largest Lithium producers in place and have completed DFS-level engineering on both the above ground and below the ground parts of the project. They have a low capex of AUD$85M to be producing 175,000t/pa of high quality Lithium concentrate at an operating cost that's going to be competitive with their peers in Australia.

The off-take agreement is a 4 year contract with Yahua, to supply them with 75,000t/pa of Spodumene concentrate, which is about 40% of Core Lithium’s product. It is good to have a level of diversification in the customer book which is why the agreement is for 40% and not more. 

Plans & Goals for 2021 

The first plan for Core Lithium is to achieve FID by the third quarter of this year and then to start project construction by the end of this year. The drill programme aims to increase the resources of the project and increase the life of mine.  

Core Lithium has a good team and they are in the right place with a good asset, and now that they're funded, can deliver on those goals that they have had as a company for the last few years. They have had good feedback from the market, both strategically and from finance markets and aim to be a global Lithium supplier in the near future.

M&A and Deals at Market Born out of Necessity or Scaling Up? 

There is a lot of M&A activity happening in the market at the moment. Some of these deals are well-timed and opportunistic acquisitions that were made last year towards the bottom of the market, which is typically when you see M&A at certain pivot points in the market. Alongside that, the equity valuations are coming back into the sector as a whole.

Core Lithium is positioned as Australia's next new Lithium producer and they are focused on delivering their project with low capex and high revenues to get into production which is where the value lies.

We have been interested in following the Core Lithium story since our first conversation and more importantly, following how the market is reacting to what they're doing.  

To find out more, go to Core Lithium's Website.